Welcome to AcadeMedia Audiocast with teleconference third quarter 2023, Q1- Q3 2022. For the first part of this call, all the participants are in a listen-only mode, and afterwards, there will be a question and answer section. Today, I'm pleased to present CEO Marcus Strömberg and CFO Katarina Wilson. Speaker, please begin.
Thank you very much, and good morning. This is Marcus Strömberg and Katarina Wilson, and we will go through this quarter three report from AcadeMedia. I will give you a short introduction first, and then I will hand over to Katarina to go through the numbers. AcadeMedia has now gone back to being more normal after this situation with the pandemic. We have more physical presence at our school, and we are also very happy to see that our preschool international strategy is going more back to our original plan. As we are mentioning in the report, we've grown now our preschool with more than 5%, and we are going back to the normal growth in Germany. Still, we have a lot of capacity that needs to be built up in Germany.
As we have mentioned before, we are also looking at other international opportunities in Germany, both looking to compulsory schools and also adult education in Germany. We are also very happy that we can enter one more country. We have made a platform acquisition in the Netherlands. Both in the Netherlands and many other countries in Europe are in great need of preschool places. Now we run preschools in four countries, but we still see most of the growth opportunities in Germany. In Sweden, the need for school places is still high. We have had a good development when it comes to our compulsory schools and our upper secondary schools, and now we are working a lot with the school choice after the summer. We are planning to start our two new big campuses that will be the biggest in Stockholm.
We have also celebrated the 30-year anniversary when it comes to the independent schools. There has been a lot of political noise in Sweden, but we think that the situation is more stable because some of the other company, other parties outside the government is very firm in their support to the independent sector. When it comes to adult education, we have seen an exceptional demand during the pandemic. We are now going back to the more normal levels, but we are also happy to see that the need of retraining and also vocational training is still high. With that small remarks, I will hand over to Katarina to go through the numbers, and I will answer questions after her presentation. Please go ahead, Katarina.
Thank you, Marcus. My name is Katarina Wilson, and I'm the CFO of AcadeMedia. Moving on to page three, highlights quarter three of our financial year 2021-2022. Student numbers grew by 3.8% organically, and the acquisition of Segab and Stims are now included in the comparable period. The organic growth is strong both in the compulsory and the upper secondary school segments. What is really encouraging is the growth in the preschool segment with 5.2%, which is higher than what we've seen for quite some time. Net fees increased by 5.9% with the growth in all segments, except in the adult education segment, where volumes are coming down to more normal levels from very high levels that we saw last year.
Adjusted for a positive currency translation effect of EUR 40 million, the organic growth was 4.7%. Adjusted EBIT decreased to SEK 264 million, and the adjusted margin decreased to 6.9%. The two main reasons for this decrease is lower volumes, as expected in the adult education segment, and increased costs in Norway. I also would like to point out a minor change to last year's numbers, a restatement related to an accounting change, cloud computing arrangement. The full year effect, last year of this restatement is five million positive on EBIT, and in the quarter, one million positive. A full restatement and further explanation can be found on page 22 in our quarterly report.
Moving on to page four, adjusted EBIT in quarter three going from last year, SEK 279 million to this year, SEK 264 million, where the decrease mainly relates to volume decline in the adult education segment, leading to lower profitability. Again, it is worth reiterating that volumes are coming down from very high levels last year to normal levels this year. Also, decline in the preschool segment entirely coming from Norway, where a combination of COVID-related costs, higher electricity prices, and reduced pension compensation is affecting EBIT. In the compulsory and upper secondary school segments, continued good solid increase in number of students as well as increased absence, particularly in the beginning of the quarter, resulted in somewhat lower personnel expenses. All in all, the effect of the pandemic in the Swedish operations were similar to last year, about SEK 15 million positive.
COGS was lower than last year due to this change in accounting rules that I told you about, so related to cloud computing. This change that we see or this effect we see in the quarter is a one-time effect. We will not see this effect in coming quarters. Items affecting comparability SEK -27 million includes additional costs related to the fire in a compulsory school in July, SEK 12 million, and we expect to get further insurance compensation in the coming quarters. Also, restructuring costs SEK 15 million in the upper secondary school. Moving on to page 5. Net sales rolling 12 months is now for the first time exceeding SEK 14 billion at SEK 14.2 billion. Adjusted EBIT above SEK 1 billion and the adjusted EBIT margin still above 7% at 7.1%.
Moving on to page eight, development by segment and starting with the preschool segment. In Germany, four further units opened in the quarter, which gives us a total of 15 units so far this financial year, and in total in Germany, 72 units. The plan is to open one f urther unit in Germany in the next quarter, which will give us a total of 16 units this year. In total in this segment, we now have 289 units in three c ountries. As Marcus was saying, from next quarter, we will also welcome two new units in the Netherlands. The number of children increased by 5.2%, driven mostly by new starts in Germany, but also acquisitions in Sweden and Norway.
Net sales increased by 10.6% compared to last year, and adjusted for a positive currency effect of SEK 40 million, sales grew by 6.4%. The growth is mostly coming from Germany. EBIT and margin was lower than last year, as I said, entirely due to changes in Norway. Lower pension compensation and higher salary costs, as well as high cost to temporary staff, during the pandemic, and higher electricity prices, all in all, had an effect on EBIT by about SEK 20 million. Year to date, salary cost is SEK 15 million higher than last year, and the full year effect is estimated at SEK 20 million. The expected impact from lower pension compensation is estimated to SEK 17 million this financial year. Of course, this means that we will see increased cost also in the next quarter.
High cost in Norway was somewhat offset by return to normal operations in Germany and lower personnel expenses in Sweden. School voucher increases in Norway for 2022 was on average 2.8%, and this should be compared to last year's 4.4%. Last year, the higher increase reflected the staff density norm that was introduced two years earlier. In Sweden, the school voucher also increased by 2.8%, and this should be compared to last year's 1.9%. Moving on to the compulsory school at page 9. We continue to see good, solid organic growth in the compulsory school segment. The number of students increased by 2.4% and sales grew by 7.2%, where the acquisition of Swedish Education Group and Stims now are included in the comparable numbers.
No longer impact the comparison. The annual voucher revision was 2.1%, from January 1, compared to last year's revision of 2.6%, so higher voucher increase this year. Adjusted EBIT amounted to SEK 63 million, which was higher than last year, and the margin was 6.7%. Volume growth is the main reason for this increase, but also to some extent, lower personnel costs due to continued absence, mainly in the beginning of the quarter caused by the pandemic. Additional costs related to the fire in July, SEK 12 million, was reported as items affecting comparability. As I said, we expect to receive further insurance compensation in the coming months. Moving on to the next page, after secondary school at page 10.
Student numbers increased organically by 2.3%, where the acquisition of Segab no longer impacts the comparison. The student growth is mainly coming from the 21 new schools that started over the last five years. Net sales increased by 6.5% driven by volume growth. The annual voucher revision was 2.3% from January, which is higher than last year's only 1% increase. EBIT was in line with last year at SEK 115 million, and the margin decreased to 9%. Also in this segment, volume growth is the main driver to the results. Also somewhat lower personnel cost of SEK 5 million caused by absence. In comparison, last year, the pandemic reduced costs by about SEK 10 million, and so we had a bit of a higher effect last year.
Suspended activities in previous quarters due to the pandemic are similar to last year, expected to take place to some extent in the next quarter, which can impact costs. Looking ahead, the plan is still to open two further schools in the autumn of 2022, and also preparations to move eight existing schools into our two new brand new campuses in Stockholm are well underway. Investments in the campuses will, similar to a new start, have a negative impact on the margin for two years. Moving on to adult education, page eleven. Last year, high unemployment created very high demand for adult education with exceptional volumes and high capacity utilization in our programs. We're now seeing an improved job market as well as lower immigration, and this is reflected in lower number of participants in our programs. Net sales decreased by 7.8%.
Demand for higher vocational education remains high, and sales in this business area increased by 18% organically. The acquisition of KYH last year is no longer affecting the comparability. A continued high capacity utilization had a positive effect on earnings. VAT on subcontractors is now fully reimbursed from January. The number of participants in municipal adult education continued to decrease to a normal level, and net sales decreased by 17%. This of course resulted in lower capacity utilization and profitability, especially in the SFI operations, where we're now adjusting capacity to this lower demand. This adjustment is expected to be completed at the beginning of the next financial year.
Sales in the labor market services business also declined by 40%, but from a very low level, and this area now only accounts for 8% of the segment's total sales. The transition to the new matching service was completed in the quarter, and volumes in this new contract is expected to grow going forward. All in all, adjusted EBIT in the adult education segment decreased to SEK 40 million, and the margin was 8.9%. I also would like to point out that the adult education segment is taking a small but very strategically important step to grow internationally, by starting an apprenticeship program in the U.K. in the autumn of 2022 with game development. Moving on to page 13, free cash flow and investments.
Free cash flow defined as the cash flow before investing in expansion was lower than last year and amounted to SEK 19 million. I want to reassure you, apart from the lower EBIT, this is entirely a calendar effect. The main reason is that the working capital in Norway last year was unusually favorable. Our municipalities paid us in March instead of in April due to Easter. What we see now is normal working capital movement. Rolling 12-month free cash flow amounts to SEK 867 million. Moving on to page 14, continued strong financial position. Net debt excluding IFRS 16 is again significantly lower than last year at SEK 1.3 billion. Leverage is lower than last year at 0.9, which is well below the financial target of below 3.
Finally, moving on to the last page 15, the financial performance versus targets. To conclude, we are now for the sixth quarter on a 12-month running basis, meeting all of our financial targets. With that, I would like to open up for questions.
Thank you. If you have a question for the speakers, please press zero one on your telephone keypad. Our first question is from Stefan, ABG. Please go ahead.
Hello, Marcus and Katarina. My question is regarding the adult education segment, which we saw a normalization in the quarter may be a bit faster than we anticipated. Can you just comment on where you are in the cycle now? I mean, have you seen the drop that you expect from municipality education or are we still heading south? Also on the VAT reimbursement, you took it as an item affecting comparability when you had the costs. I can't see that you adjust the numbers for it now.
I think I can comment on the VAT, but if you take the adult education, I think we have mentioned for a few quarters now that we believe that we will go back to our target level and more normal level, when it comes to education, and that is what we have seen now in the quarter. What is happening now is that the labor market is quite tight trying to recruit a lot of people that before the former quarters was going into our municipality training program. We also had a lower demand when it comes to SFI, the immigration education. I think that we will see that we will be at these levels.
We will be in our target range, but we will in the next quarter finalize the closing of some units when it comes to the municipality program, and then go back to more stable level in quarter one after the summer. This is regarding to the municipality programs. When it comes to the vocational program in the quarter, we see a growing and still high demand. Of course, you have to keep in mind that the labor market for the moment is quite strong. We still believe that this positive development will continue, but it will reflect the labor market. What we also have to keep in mind is that the adult education is counter-cyclical, so who knows what will happen in the coming quarters and coming year.
The situation in Sweden could change a lot. We should also keep in mind that there are still 7% unemployment, and we have a lot of people that needs to go back to the labor market. We still have a lot of opportunities. The labor market authorities are also working hard to launch new program related to this group. Then maybe you can comment on the VAT.
Yes. The reason why we reported VAT last quarter as an item was that we didn't have compensation, and this VAT came into place from August. Now, we know for certain that we get reimbursement compensation, and it's included in our compensation. Right now we have the VAT cost, but we also get reimbursed for it. That's what we will see going forward. Last quarter was, you know, it was outstanding item.
Okay. Perfect. Thank you.
Thank you, Stefan. Next question, we have a call from DNB. Please go ahead.
Yes, good morning, Marcus and Katarina. Marcus, looking at, say you describe the political turbulence and noise in the market, and you're obviously into the important part of the year where you are attracting, say, new students and children for what's gonna happen in the autumn, so to say. Looking at that process, do you feel that the political noise is making it more difficult for you to attract students and maybe also qualified teachers at this stage?
You can say that we have a long history of knowledge around these questions, and it usually is the opposite. It's a little bit strange, but the more the media people write about schools, the more important it is for parents to choose a good school. We have not seen any effect of the political noise when it comes to the operation. If you look, for instance, in compulsory schools, it's more important than ever for parents to choose a good school for their children. I would like to say the opposite.
When we talk about the political situation, it's also important to point out that the former alliance for the right-wing parties and the nationalist party side of the floor have been very clear that they will vote down the suggestions that is coming from the government. They have been very clear when it comes to the school voucher and school choice and so on. I think it will continue political noise. It will not affect the operation, and I think that nothing in practice will happen before the election.
When you look at the motivation level, so to say, among your employees, have you done something extra to meet this internally, so to say, to keep the spirit high or how are you working with it?
We make the survey every year, and during the pandemic last year, it was an extraordinary positive result. Now we are above the result two years ago. I will say that the attractiveness among employees and the students is still very high, and we really outperform the public school when it comes to these questions. What is very important and that is really crucial when it comes to developing a good quality company is also comes to leadership, where we still have outstanding and very good results.
When you look at, say, principals at your school and teachers, you haven't seen any, say, change to the personal turnover or anything like that in this process?
No, no.
Good to hear. Good to hear.
The turnover was abnormally low, but we have not seen anything like that.
Coming back to also then the adult education area and the normalization, as you say. When you look at the normal mix here in this area, say in where how do you see the different kind, the split between the different subsegments then, sir?
For the moment, we have really three big segments. We have the unemployment agency, where the municipality is, and we have the vocational training. For the moment, you know, the labor market agency is at a very low level, and it has been for many years. I think that we will see that the government will launch new programs when it comes to this segment, and they are very firm to continue development but to prioritize the labor market agency. Here we will have a lot of opportunities in the future. When it comes to the municipality program, we are back on, I would like to say, more to normal level if you compare two years ago.
What is important to say that we saw extraordinary levels last year when it comes to municipality program, because a lot of people just wanted to go to university, and they wanted to retrain. I think it is still a great need of municipality, and the contract portfolio when it comes to municipality programs is still very strong, but we will be seeing more normal levels. When it comes to the vocational program, we are really the market leader. We are almost close to 20% of the total market. When we look at the quarter, we are on a higher level than the last quarter, and the profitability is good.
We have really a strong position, but it's difficult to talk about the future because of course, some of these people are really also attractive for the labor market. We hope that they will finalize their education because then they will get an exam, and then they will be even more attractive at the market. We have a strong program, and we haven't seen any effects so far.
Good to hear. I remember prior to the last election, you saw a very strong business. I guess the Social Democrats put a lot of extra money into adult education coming after the last election to get the unemployment rates down. Then suddenly after the election, all that money was gone. Have you seen the same kind of thing this time around, that there is a lot of money on the table prior to the election and the risk for money going off the table after?
No, I don't think so because now the focus of the government has been the pandemic situation, and now we have a strong labor market. It's a gap between the people that are employed and the need in the labor market. So that sort of retraining is important, and that's why we had this very good position when it comes to vocational program. The problem after the election. I don't think any money will disappear. After the election, it will be a key question, what will happen with the unemployment? I think you can analyze the situation quite the same as I can, and I think that we will see in the coming years a higher unemployment rate, and we have this very good position.
The government really has to solve the problem with the people that has been unemployed for such a long time. I think they will send in more money when it comes to these sort of programs.
Excellent. Good to hear. Just to finalize on adult education, this moving to the U.K. market sounds very interesting. What could that become in size over time if it turns out the right for you?
For the moment, it's a small unit, but I think we mentioned we have two strategic strategies when it comes to the adult education. It's to develop the education when it comes to game developer, and that is what we have started in UK. We are also looking to start other units or maybe make acquisitions in that sector in Europe. That could be. That is one important part. We have the other very important part that is the EdTech that is also part of the adult education. To talk about numbers now, it's a little bit too early, but so far, so good. What is interesting when it comes to UK that they have a system that is quite similar to our Yrkesvux. And that is called Apprenticeship, something like that.
I think we have got a lot of opportunities when it comes to adult education. We have also made a lot of market surveys when it comes to this sector, both in Germany and in Spain and in the Netherlands.
If you're looking at the total market in these segments, could you give us some idea about, say the size of the market in the UK for this or Germany or something like that, so we can have an idea comparing it maybe to Sweden?
I think it's a bit too early to talk about that. You know, Sweden is a very small country, and the need to retrain and to get a good education is very high in Germany and both in the UK. I think it's a little bit too early to talk about the market levels. We can take that question with us, and maybe we could talk more about that. We will also give you more numbers when it comes to the EdTech development. As I mentioned in the interview this morning, we also work a lot in France for the moment, but that is just a digital presence. The EdTech segment in a business unit in adult education is also developing quite well and has a lot of opportunities coming ahead.
Excellent. I'll stop there. Thank you very much.
Thank you, Carl. I would like to remind you that if you want to ask a question, you will have to press zero one on your telephone keypad. There are no further questions at this time. Please go ahead, speakers.
Let me say thank you very much. We have a fantastic summer here in Stockholm, and we wish you all a good day. Thank you very much.
Bye-bye.
Bye-bye.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.